Market round-up: 14 – 18 January 2019

The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in January 2019.

Brexit

They say a week is a long time in politics, but it’s been an even longer time since an international treaty was defeated in parliament; all the way back in 1864. It was a great year for infrastructure if nothing else, with Charing Cross Station and the Clifton Suspension Bridge both opening that year. Interestingly, 1864 also proved an illustrious year for sport, as overarm bowling was legalised in cricket for the first time.

In what could have been a tumultuous time for the Prime Minister this week, Theresa May stood firm in her crease, winning a vote of no confidence, called by Jeremy Corbyn after a crushing defeat for her divorce deal in parliament. On Tuesday, British lawmakers overwhelmingly voted down Mrs May’s agreement, an outcome that was largely priced in by financial markets, although the magnitude, a margin of 230, came as a surprise.

However, the Prime Minister’s historic defeat was seen by many commentators as reducing the chance of a hard Brexit even as uncertainty over a no confidence vote prevailed. Theresa May was able to win the subsequent vote tabled by Jeremy Corbyn the following day, seeing off the vote by winning 325 to 306.

How did markets react?

Surprisingly, throughout the ordeal, domestic markets remained remarkably sanguine, with both the FTSE 100 and the more UK focussed FTSE 250 shrugging off much of the uncertainty generated. Sterling did enjoy some modest gains as events in Westminster unfolded, passing $1.29 against the US dollar.

Focusing more on happenings in the Bank of England rather than in Westminster, UK CPI data was released on Wednesday. In line with consensus forecast, the inflation data showed that the price of goods and services grew at 2.1% compared to a year ago, showing a steady decline in price rises over recent months. The data will make for happy reading for Mark Carney and co as they saw inflation drifting down towards their target of 2%, giving them little reason to carry on raising rates in the short term.

Economic data

In terms of economic data, the week started on a bad note as Chinese export and import data showed that perhaps its ongoing trade war with the US was starting to bite. Expected to grow by 0.6%, export data slowed to 0.2% whilst import numbers proved to be really disappointing, showing a contraction of 3.1% against hopes of a 12% rise.

Global equities rallied on Friday on the back of reports that the US were considering offering an olive branch to China, scaling back tariffs in the hope it would encourage China to agree on longer-term reforms.

With the beginning of 2019 reversing some of the losses 2018 endured, investors will be hoping the trend continues as we head into what will prove to be a busy week on the economic data front.

Much of 2019’s returns so far have come from fresh optimism that the US and China are making solid progress in ending a burgeoning trade war that has threatened to derail global growth. With talks set to continue between the two global superpowers during the coming week, economists will turn their attention to how much damage has been done already.

China

The first port of call this week will be a slew of Chinese data, released on Monday morning. The National Bureau of Statistics of China will release both Industrial Production and GDP figures, which together could set the tone of the coming week. With GDP being the broadest measure of economic output, and Industrial Production vitally important to China’s economy, we could expect heightened volatility in the commodity markets. China’s Industrial Production has disappointed in recent months, consistently coming in below forecasts, causing many to hope for a bounce back this coming week.

Average Earnings Index data

Although Monday could prove to be subdued in terms of trading volume due to a bank holiday in the US, on domestic shores it is very much business as usual. Hotly anticipated Average Earnings Index data will be made public at the start of the week and should make for interesting reading for anyone whose New Year’s resolution is a career change. When looked at in conjunction with inflation figures, earnings data matters as it shows how much consumers are earning in real terms and should give us a clue as to what future spending habits should look like.

Eurozone

The second half of the week will be characterised by a flurry of European PMI (Purchasing Manager Index) releases. Thursday will see six in total, both Services and Manufacturing for the Eurozone’s two largest economies, Germany and France, followed by PMIs for the Eurozone as a whole. PMI data is important as it is a leading indicator of economic health. Businesses tend to react quicker to market conditions and their purchasing managers hold perhaps the most current and relevant views on the sector they operate in. A reading above 50 indicates expansion whilst one below will show that the sector is contracting.